Reliance Infrastructure Ltd. Vs. State of Haryana

[Punjab and Haryana High Court CR No. 7191 of 2019 (O&M), Decide on 03.06.2020]

A civil revision had been filed by Reliance Infrastructure Ltd. (RInfra) challenging the order dated 24.09.2018 of the Special Commercial Court, Gurgaon whereby the petition under Section 14 of the Arbitration & Conciliation Act, 1996 challenging the appointment of the Sole Arbitrator had been dismissed. The Punjab and Haryana High Court, while dismissing the Revision petition came down heavily on RInfra observing that "The Petitioner has made efforts to thwart the arbitral proceedings…".

The facts relevant to the case are that the Petitioner- RInfra was awarded Engineering, Procurement and Construction Contract (EPC) for 2x600 MW Coal-fired Thermal Power Plant at Khedar, Hisar, by Respondent No. 2 being Haryana Power Generation Corporation Ltd. (HPGCL). The EPC contract consisted of an Arbitration Clause which was invoked by RInfra, requesting that Arbitrator be appointed by the Government of Haryana. Pursuant to such invocation, the Managing Director, HPGCL wrote to ACS (Power) suggesting the name of Smt. Promilla Issar IAS (Retd.) Ex-Chief Secretary, Haryana to be appointed as the Sole Arbitrator. Said note/proposal was subsequently approved by the Chief Minister and thereafter vide order dated 29.7.2016 the Governor of Haryana appointed Smt. Promilla Issar as the Sole Arbitrator.

After the appointment, RInfra filed a petition under Section 11(5) of the Arbitration & Conciliation Act seeking appointment of Arbitrator. However the petition was dismissed vide judgment dated 27.10.2016 though it was clarified therein that "..if it is found later that the said arbitrator suffers from any disqualification, the petitioner would be entitled to adopt appropriate proceedings to challenge her appointment." This order dated 27.10.2016 was also challenged by the petitioner before the Supreme Court by filing an Special Leave Petition which was subsequently withdrawn on 29.3.2017.

On 3.7.2017 the Supreme Court delivered its decision in the matter of M/s TRF Limited vs. Energo Engineering Project Ltd. (AIR 2017 SC 3889), wherein it had been held by the Supreme Court that ineligible person cannot nominate another as an Arbitrator and such an Arbitrator becomes ineligible as per provision contained in Section 12(5) of the Act.

Relying M/s TRF Limited the petitioner filed a petition under Section 14 of the Arbitration and Conciliation Act, 1996 before the Special Commercial Court, Gurgaon. The petition under Section 14 was dismissed vide order dated 24.09.2018, which the petitioner had challenged by way of the present revision petition. It had been contended by RInfra that the mandate of the Sole Arbitrator was void ab-initio as HPGCL suggested the name of the Sole Arbitrator which was merely approved by the Government of Haryana, which is in contravention of the law laid down in M/s TRF Limited. It has further been argued that the test is that a person who is interested in the outcome of the arbitration would have a possible bias and, thus, this would disentitle such a person from being appointed or nominated as an Arbitrator or play any role in the appointment and any violation of this dictum would render the appointment void ab-initio.

On the other hand Senior Advocate- Mr. Naresh Markanda, assisted by Ms. Sonia Madan, Advocate, partner LexCommerci appearing on behalf of HPGCL- had contended that that the issue of disclosure was finally settled by this Court in its judgment dated 27.10.2016. Further, since the petitioner had unreservedly withdrawn the SLP it was no longer open to the petitioner to raise any further issue.

The Punjab and Haryana High Court holding the arguments raised by HPGCL to be correct came down heavily on the Petitioners observing:

"46. The Court cannot shut its eyes to the fact that the matter before the Sole Arbitrator is pending since 2016 and the arbitral proceedings have been delayed by the petitioner. The petitioner has made efforts to thwart the arbitral proceedings despite having unconditionally withdrawn it’s Special Leave Petition before the Supreme Court….. Thereafter, the present petition was filed by it under Section 14 of the Act in an attempt to reagitate some grounds which had already attained finality."

The Court observed that merely because the Government of Haryana has also zeroed down on the same person as mentioned in the noting made by the Managing Director of HPGCL would not imply that the Government did not independently apply its mind before selecting and appointing the Sole Arbitrator or that HPGCL had played any role in the appointment of the Sole Arbitrator. The Court further held that the Supreme Court in the case of Perkins Eastman Architects DPC & Anr. vs. HSCC (India) Ltd., 2019 SCC Online SC 1517, while considering the decision in M/s TRF Limited, held that that there are two categories of cases - one where the Managing Director himself is named as an Arbitrator with an additional power to appoint anyone else as an Arbitrator and second, where though the Managing Director is not authorised himself to act as an Arbitrator but is authorised to appoint anyone else as an Arbitrator. The Court observed that the argument of the Petitioner deserves to be rejected simply on the ground that it was not the case set up that the Managing Director of HPGCL was the Sole Arbitrator or that the power to appoint the Sole Arbitrator vested with the Managing Director of HPGCL under the contract/agreements. The Sole Arbitrator was admittedly appointed by the Government of Haryana which was neither a party nor a signatory to the contract/agreements making the appointment valid.

Authorship of Lex Commerci

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